Placebo and the economy

In medicine, a placebo is a substance or procedure a patient accepts as medicine or therapy, but which has no specific therapeutic activity.  Example, a sugar pill or an injection of sterile water, neither of which have any medicine in them.   Any therapeutic effect from a placebo is thought to be based on the power of suggestion.

In order for a placebo to work, the subject must believe that an effective medication (or other treatment) has been administered to them.  In Washington,  Congress, President George W. Bush, Sen. Barack Obama and Sen. John McCain are all working to agree on some kind of bill that will keep the American economy from disaster.  I'm wondering how much of a placebo affect will there be on American citizens and on Wall Street?

In a new study I heard about today, but do not have a link for as of this writing, indicates that the degree of placebo affect on a patient is also determined by the delivery system of the medicine.  Example, if a test patient was given a big pill, they were more likely to 'feel better' than if they were given a tiny pill.

Continuing the study, if a test patient was given a big red pill, they were even more likely to feel better than if they were given a big white pill.  As one would expect, if the test patient was given an injection with a big needle, the patient would be even more inclined to feel better than if they received a pill or liquid. 

An example of the placebo effect was when scientists tricked runners into thinking that they were drinking oxygenated water; thus making them perform better. In reality, the runners were drinking regular tap water. When they ran they even performed better because they thought what they were drinking would enhance their performance. (Wikipedia)

The stock market opened up this morning and stayed close to 300+ most of the day, ending at 198.80+.  Investors expected Congress to produce a bill today or tomorrow that would get money moving again, so the market was 'up'.  A placebo offered by Washington to the market???  The power of suggestion?

Democrats and Republicans were all issuing similar statements, "I am concerned that unless Congress acts soon, the country’s economy will find itself in a significant and protracted economic crisis."  --Marsha Blackburn, Rep. TN. 

...   this crisis may first be felt by our small business community; who could experience a credit tightening that threatens their livelihood in very short order. These small business owners are the foundation of our economy and largely blameless in this crisis.  From there, credit tightening would spread across the economy and leave nobody untouched. Congress must act to make sure that they do not suffer at the hands of Wall Street excess.

Yet with the unanimous urgency from all sides, there was also a cry of "  ... there are better ways to address it than the plan before us". 

For the placebo to be affective, the subject/patient must believe, must have faith, in the one offering the cure to them.  Wall Street swallowed the pill this morning and felt better, but I'm not sure the pill will work again and again.  A real cure is needed.

We are dealing with more than one patient here.  First, Wall Street.  Second, American taxpayers.  Third, politicians.  

The politicians will come out of this just fine.  They will maneuver, issue statements, and position themselves to look like winners no matter what kind of solution is reached.  Wall Street and Americans are the ones on life support and in need of a good physician.  (Anybody know one???)

American citizens have made their wishes known to the politicians with suggestions and some politicians have actually listened:

1.  Allow Wall Street to work its way back to health through its own resources and ingenuity.

Such a solution should put a premium on driving new private wealth into the market, holding negligent executives responsible, and turning to the taxpayer as the lender of absolute last resort.  The plan should deal with all of those impacted, to include regional and community banks as well as major Wall Street firms.

2.  A suspension of the Capital Gains tax should be considered as part of any proposal. 

To the extent that taxpayer funds must be used, they should be offset by spending reductions in other places, and be distributed in the form of short term bridge loans. Congress has established a similar bridge loan program for the auto industry.   I have also proposed a 5% across the board spending cut- excepting defense and homeland security funds- that could yield over $100 billion annually.  -- Marsha Blackburn, Rep. TN

The suggested $700 billion (a maximum figure we are told, but no one believes it will stop there), is a big, bitter pill for Americans to swallow, especially when we do not believe in the one offering it to us and we do not believe it is a cure for what ails us.  I'm afraid the power of suggestion won't work on the American people this time. 

I.V. anyone???

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This article is posted at Real Clear Politics

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Comments

[Paul]

Chuck Schumerthe political hack from New York tells John McCain to leave.
Chuck, He's a sitting US senator representing his people and in my view the American people.He has just as much right as you to craft and mold legislation. You seem to have a mental complex Chuck and that is you like talking to yourself !
Why does your buddy Chris Dodd have a seat at the table on this bailout negotiation ? Does he represent the American people when it has been disclosed that he recieved over $160,000 in campaign contributions from Fannie Mae, a sweetheart mortgage deal from Countrywide and some mone from Lehman Brothers ?
Schumer you are a hypocrite plain and simple ! I believe you received some money from one of these entities as well !
Chris Dodd exhibits the appearance of impropriety and should be removed from any bailout negotiations and his chairmanship of the senate banking committe !

[Debbie]

Paul, thank you so much. Your comments add a lot to the discussion. Keep them coming.

[Paul]

Debbie I like your site and the conservative wisdom expressed in your blogs.

[Paul]

Chris Dodd the chairman of the senate banking committee criticized McCain for political grandstanding.Recently it was disclosed that Dodd received over $160,000 in campaign contributions from Fannie Mae and a sweetheart mortgage deal from countrywide.
Can we trust Chris Dodd to do whats right ?

[Rosemary]

The dems offered half now, half later. We need it all NOW. My bank went belly up. I'm not worried, though. I have direct deposit...for my Social Security check! I KNOW them politicians won't let anything to that. :)

These idiots don't know the first thing about econ 101. I pray God would intervene and give them wisdom! Dems are blaming Republicans for not signing on to a bad bill. What else is new? They won't even listen to our ideas. They are calling them, guess...racist. Yup. Real ingenious, eh?

[Faultline USA]

Very well said! The bailout will be one very bitter pill!